Merge of American Airlines and Us Airways Essay

The buzz in the airline industry in February 2013 was all about the potential merger between American Airlines and US Airways since that would make the merged company the number one airline in the industry globally. Despite the some cynical comments veteran investors hold for investing in the airline industry, which will be mentioned below, as well as the unforeseen lawsuit being thrown at their way, it is an investment that is strongly suggests a profitable investment in the long run. First of all, the potential profitability of the merger could be foreseen by reviewing past cases of airlines mergers such as the merge between United Airlines and Continental Airlines as well as Delta Airlines and Northwest Airlines. Delta Airlines and Northwest Airlines merged in 2008 and United Airlines announced their merger with Continental Airlines 2 years later in 2010. Delta was not profitable right off the bat after their merger but took them a few years to turn things around balancing with th e economical situation and oil prices. â€Å"Most pros consider the industry untouchable because the airlines have historically operated irrationally and have always been at the mercy of oil prices, unions and new competition†(Feinberg, 2013) but then again Feinberg says that United, Delta as well as US Airways â€Å"have been making money for the past three years and may achieve record profits in 2013† (Feinberg, 2013). Post merger of United Airlines and Continental Airlines, â€Å"the parent company of United Airlines, one of the world’s largest carriers, reported a $448 million quarterly net loss, pressured by high fuel costs and expenses related to problems integrating some operations of United in its merger with Continental Airlines†(2012). †But the problems appear to be largely over. So far this year, United shares are up 22%, the S&P 500 Index is up 14.5% and Delta shares are up 66%. No doubt, Smisek seeks room to grow (Reed, 2013).† United is also looking to enhance their services for corporate customers by â€Å"revamping its aircraft that fly from JFK to Los Angeles and San Francisco, adding â€Å"flat bed† seating and faster, complimentary Wi-Fi to its premium sections. American is adding state-of-the-art Boeing 777-300ER aircraft to its fleet, the largest new aircraft used by a U.S. carrier since 1990. Its premium cabin has a walk-up bar stocked with snacks–a first for any U. S. airline, the company boasts† (Fickenscher, 2013). Another crucial factor that indicates sustainable growth are the soft skills; â€Å"A new American Airlines combining US Airways is fortunate to have US Airways CEO Doug Parker at the helm, because he appears to understand not just the nuts and bolts of merging logistics systems but also the human process of ego suppression. This would be the second time his smaller airline has merged with (taken over, some would say) a larger one, and the second time he has let go of the identity of the enterprise he built (HBS Working Knowledge at Forbes, 2013). † Creating an executive management team that is functioning well as a strong team is crucial to an M&A situation. They also need to have a clear vision of the company in order to overcome all the minor speed bumps they will inevitably go through with the merger. Currently, American Airline s and US Airways are facing on going lawsuits against the US Justice department. Depending on the outcome of this lawsuit, American Airlines will either move on with their original merger plan or if blocked, then they would have to reorganize a new plan while operating in bankruptcy. References Feinberg, Andrew. 2013. â€Å"News Flash: Airlines Soar.† Kiplinger’s Personal Finance 67, no. 7: 38. Business Source Complete, EBSCOhost (accessed September 15, 2013). 2012. â€Å"United Continental’s Loss Widens, but Less Than Expected.† New York Times, April 27. 4.Regional Business News, EBSCOhost (accessed September 15, 2013). Reed, Ted. 2013. â€Å"No Wonder United’s CEO Is Buying United Stock.† Forbes,com, September 1. Accessed September 15, 2013. http://www.forbes.com/sites/tedreed/2013/09/01/no-wonder-uniteds-ceo-is-buying-united-stock/. Fickenscher, Lisa. 2013. â€Å"Mergers put biz travelers in first class.† Crain’s New York Business 29, no. 27: 3. Regional Business News, EBSCOhost (accessed September 15, 2013). 2013. â€Å"Big Deal: Reflections on the American and US Airways Megamerger.† Forbes.com 10. February 19. Business Source Complete, EBSCOhost (accessed September 15,2013).